Besi Teguh Bhd manufactures and sells machine spare parts and tools to contractors all over Malaysia. The company is in the process of finalising their financial statement for the year ended 31 December 2019. Below are the situations related to the company during the year.

Situation 1 On 1 September 2019, Besi Teguh Bhd sued Tools & Tools Bhd, a supplier, for breach of contract for RM350,000. On that date, the company's lawyer was in the opinion that the Besi Teguh Bhd would probably win the case and expected sufficient amount of compensation will be awarded. As at 28 December 2019, the court ordered Tools & Tools Bhd to pay Besi Teguh Bhd a sum of compensation of RM275,000. However, as at the year-end, Tools & Tools Bhd has not yet paid that compensation.

Situation 2 It is the policy of the company to give a six-month warranty period and to replace for free of charge of any goods returned due to manufacturing flaw. At the beginning of the year 2019, there was a balance brought forward in provision for warranty account amounted to RM320,000. During the year ended 31 December 2019, there was no claim made by the customers and the provision for warranty cost in relation to the current year sales was estimated at RM210,000.

Situation 3 In line with the expansion of online business, the company planned to cancel the two rental agreements for two different premises which was signed three years ago and still have remaining period of two years. Based on the terms stipulated in the agreement, the rental is non-cancellable but should either party intend to do so, penalty of RM500,000 is to be imposed. The total rental amount for both premises is RM240,000 per year. A negotiation was held with the owner of the premises before the year end to forfeit the penalty. However, the landlord did not agree to forfeit the penalty but agreed to reduce it to RM300,000. On 30 December 2019, the company decided to proceeds with the cancellation of the rental agreements.

Required:

a. Discuss whether Besi Teguh Bhd should recognise the compensation receivable in Situation 1 for the year ended 31 December 2019.

b. Prepare the relevant journal entries for the year ended 31 December 2019 in both companies books for Situation 1.

c. Illustrate the extract Statement of Profit or Loss for the year ended 31 December 2019 and Statement of Financial Position as at 31 December 2019 of Besi Teguh Bhd to incorporate the Situation 2.

d. Explain the appropriate accounting treatments for the Situation 3 in accordance with the MFRS137 Provision, Contingent Liabilities and Contingent Assets.